The Louisiana Supreme Court on Friday overturned a rare state appeals court ruling in policyholders’ favor and ruled in a divided opinion that policyholders are not entitled to COVID-19-related business interruption coverage.

The court said in its 5-2 ruling it was reversing a state appeals court and reinstating a trial court judgment denying coverage, “finding no ‘direct physical loss of or damage to property,’” according to the decision in Cajun Conti LLC et al. v. Certain Underwriters at Lloyd’s et al.

The latest state supreme court ruling joins 10 other state supreme courts that have ruled in insurers’ favor, with only Vermont’s high court ruling for policyholders.

In February 2021, following a bench trial that was the first to be held on the issue, a Louisiana state judge ruled in favor of Lloyd’s underwriters in the case filed by the owner and operator of the Oceana Grill in New Orleans’ French Quarter.

In June 2022, the ruling was reversed, with a Louisiana appeals court holding the restaurant was entitled to business interruption coverage because of ambiguous policy language.

In the latest ruling, the majority opinion said, “COVID-19 did not cause damage or loss that was physical in nature.” It “never repaired, rebuilt or replaced any property that was allegedly lost or damaged,” it said.

“We cannot alter the terms of an insurance contract under the guise of contractual interpretation when the policy uses ambiguous terms.”

The dissenting opinion states that while the restaurant did not suffer any physical damage, “it did suffer physical loss of its property due to the physical contamination of the property by the COVID virus, a physical thing.

“Like smoke for a fire next door that did no physical damage to other premises, but caused the business to be closed until the odor could be removed and the business cleaned, a physical loss occurred.”

Attorneys in the case did not respond to requests for comment.

Insurer attorney Laura A. Foggan, a partner with Crowell & Moring LLP in Washington, who was not involved in the case, said the ruling is “a strong reaffirmation of what courts around the country have found” in the COVID-19 insurance battle.

“It’s a refreshing restatement of the need to just enforce the contract as written,” she said.

Pointing to the dissenting opinion, policyholder attorney Peter A. Halprin, a partner with Pasich LLP in New York, who was not involved in the case, said it provides an apt analogy.

If a business has to close because of smoke, even if it did not have the fire, it is “absolutely physical damage.”